Rite Aid Corporation (NYSE:RAD) Files An 8-K Regulation FD Disclosure

As previously disclosed, on February 18, 2018, Rite Aid Corporation (“Rite Aid”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Albertsons Companies, Inc., a Delaware corporation (“Albertsons”), Ranch Acquisition II LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of Albertsons (“Merger Sub II”), and Ranch Acquisition Corp., a Delaware corporation and a wholly-owned direct subsidiary of Merger Sub II (“Merger Sub”). to the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub will merge with and into Rite Aid (the “Merger”), with Rite Aid surviving the Merger as a wholly-owned direct subsidiary of Merger Sub II (the “Surviving Corporation”), and (ii) immediately following the Merger, the Surviving Corporation will merge with and into Merger Sub II (the “Subsequent Merger”), with Merger Sub II surviving the Subsequent Merger as a wholly-owned direct subsidiary of Albertsons. Consummation of the Merger remains subject to various closing conditions, including but not limited to the approval of the Merger Agreement by holders of a majority of the outstanding shares of Rite Aid stock entitled to vote on the Merger.

In connection with Albertsons’ efforts to obtain debt financing to fund a portion of the amount necessary to complete the Merger and pay related fees in connection with the Merger and related transactions, Rite Aid and Albertsons are presenting to prospective lenders certain information regarding the combined company. Rite Aid is furnishing this Current Report on Form 8-K to disclose certain information relating to Rite Aid that is being presented to prospective lenders.

The table below contains a reconciliation of Adjusted EBITDA to net income for the periods presented above.

Consolidated

Thirteen

weeks ended

Thirteen

weeks ended

Thirteen

weeks ended

Thirteen

weeks ended

Fifty-two

weeks ended

May 30, 2015

August 29, 2015

November 28, 2015

February 27, 2016

February 27, 2016

Net income

$

8,035

$

$

35,137

$

58,076

$

102,088

Adjustments:

Interest expense

57,765

49,555

41,014

37,798

186,132

Income tax expense

5,241

28,499

14,872

49,512

Depreciation and amortization

73,689

91,501

98,488

97,456

361,134

LIFO charge (credit)

3,637

3,636

3,634

(3,015

)

7,892

Lease termination and impairment charges

5,019

9,637

6,951

18,870

40,477

Loss on Debt Modification

–

33,205

–

–

33,205

Walgreens Boots Alliance merger termination fee

–

–

–

–

–

Gain on stores sold to Walgreens Boots Alliance

–

–

–

–

–

Other

Nonrecurring Acquisition

2,084

10,381

10,077

5,686

28,228

Dead Deal Expense

1,069

1,816

(Gain) loss on FA

(258

)

(694

)

2,128

(1,782

)

(606

)

Liquidation Charges

1,985

Non-Cash Stock and Other

7,370

8,831

10,328

11,419

37,948

Non-Recurring Severance

–

–

–

–

–

Wellness Deferral

7,901

(2,062

)

(9,701

)

3,318

(544

)

Adjusted EBITDA – continuing operations

$

171,986

$

206,538

$

227,346

$

243,397

$

849,267

Adjustment to reflect full TSA fees

24,000

24,000

24,000

24,000

96,000

Pro-forma Adjusted EBITDA

$

195,986

$

230,538

$

251,346

$

267,397

$

945,267

Consolidated

Thirteen

weeks ended

Thirteen

weeks ended

Thirteen

weeks ended

Fourteen

weeks ended

Fifty-three

weeks ended

May 28, 2016

August 27, 2016

November 26, 2016

March 4, 2017

March 4, 2017

Reconciliation of net (loss) income to adjusted EBITDA:

Net (loss) income

$

(512

)

$

6,036

$

23,610

$

(25,054

)

$

4,080

Adjustments:

Interest expense

46,668

49,703

50,303

53,391

200,065

Income tax (benefit) expense

(3,021

)

3,879

(4,682

)

48,262

44,438

Depreciation and amortization

100,281

102,225

101,953

102,906

407,366

LIFO charge (credit)

8,468

8,426

8,373

(28,987

)

(3,721

)

Lease termination and impairment charges

5,778

7,226

7,199

25,575

45,778

Loss on Debt Modification

–

–

–

–

–

Walgreens Boots Alliance merger termination fee

–

–

–

–

–

Gain on stores sold to Walgreens Boots Alliance

–

–

–

–

–

Other

Nonrecurring Acquisition

2,756

1,402

1,964

7,944

14,066

Dead Deal Expense

1,888

(Gain) loss on FA

(560

)

(225

)

(6,261

)

(6,649

)

Liquidation Charges

2,771

1,533

1,079

5,925

Non-Cash Stock and Other

11,144

12,552

13,070

(13,284

)

23,482

Non-Recurring Severance

4,485

1,772

2,047

2,866

11,170

Wellness Deferral

8,059

(592

)

(13,976

)

(1,328

)

(7,837

)

Adjusted EBITDA – continuing operations

$

185,491

$

195,656

$

191,333

$

167,571

$

740,051

Adjustment to reflect full TSA fees

24,000

24,000

24,000

24,000

96,000

Adjustment for 53rd week

(10,800

)

(10,800

)

Pro-forma Adjusted EBITDA

$

209,491

$

219,656

$

215,333

$

180,771

$

825,251

Consolidated

Thirteen

weeks ended

Thirteen weeks ended

Thirteen

weeks ended

Thirteen weeks ended

Fifty-two

weeks ended

June 3, 2017

September 2, 2017

December 2, 2017

March 3, 2018

March 3, 2018

Reconciliation of net (loss) income to adjusted EBITDA:

Net (loss) income

$

(36,037

)

$

188,360

$

(18,182

)

$

(483,673

)

$

(349,532

)

Adjustments:

Interest expense

51,000

50,857

50,308

50,603

202,768

Income tax (benefit) expense

(12,121

)

117,450

(16,061

)

216,719

305,987

Depreciation and amortization

101,029

95,655

95,764

93,609

386,057

LIFO charge (credit)

10,173

3,436

6,784

(49,220

)

(28,827

)

Lease termination and impairment charges

4,038

3,113

3,939

47,675

58,765

Goodwill impairment

–

–

–

261,727

261,727

Loss on Debt Modification

–

–

–

–

–

Walgreens Boots Alliance merger termination fee

–

(325,000

)

–

–

(325,000

)

Gain on stores sold to Walgreens Boots Alliance

–

–

–

–

–

Other

Nonrecurring Acquisition

1,217

(5,022

)

4,743

1,520

Dead Deal Expense

1,055

1,786

3,345

(Gain) loss on FA

(5,877

)

(14,951

)

(5,249

)

(25,872

)

Liquidation Charges

2,418

1,348

2,055

1,765

7,586

Non-Cash Stock and Other

9,038

6,324

7,187

3,244

25,793

Non-Recurring Severance

9,612

14,030

11,111

35,537

Wellness Deferral

9,914

(12,813

)

2,564

Adjusted EBITDA – continuing operations

$

135,964

$

137,277

$

129,249

$

157,404

$

559,894

Adjustment to reflect full TSA fees

24,000

24,000

23,800

15,800

$

87,600

Pro-forma Adjusted EBITDA

$

159,964

$

161,277

$

153,049

$

173,204

$

647,494

Rite Aid believes Adjusted EBITDA serves as an appropriate measure in evaluating the performance of its business and helps its analysts and investors to evaluate ongoing results of operations, when considered alongside other GAAP measures, such as net income, operating income and gross profit. Rite Aid defines Adjusted EBITDA as net income (loss) excluding the impact of income taxes, interest expense, depreciation and amortization, LIFO adjustments, charges or credits for facility closing and impairment, inventory write-downs related to store closings, debt retirements, the previously received Walgreens Boots Alliance, Inc. (“WBA”) merger termination fee, and other items (including stock-based compensation expense, merger and acquisition-related costs, severance and costs related to distribution center closures, gain or loss on sale of assets and revenue deferrals related to Rite Aid’s customer loyalty program). Rite Aid references this non-GAAP financial measure frequently in its decision-making because it provides supplemental information that facilitates internal comparisons to historical periods and external comparisons to competitors. In addition, incentive compensation is based in part on Adjusted EBITDA and Rite Aid bases certain of its forward-looking estimates and budgets on Adjusted EBITDA.

Rite Aid defines Pro Forma Adjusted EBITDA as Adjusted EBITDA plus the fees that would have been earned under the Transition Services Agreement (the “TSA”) with WBA for the relevant period, and in order to improve comparability, Pro Forma Adjusted EBITDA further adjusts results so that periods contain the same number of weeks.

Adjusted EBITDA and Pro Forma Adjusted EBITDA should not be considered in isolation from, and are not intended to represent alternative measures of, operating results or of cash flows from operating activities, as determined in accordance with GAAP. Rite Aid’s definitions of Adjusted EBITDA and Pro Forma Adjusted EBITDA may not be comparable to similarly titled measurements reported by other companies or similar terms in Rite Aid’s debt facilities.

The information being furnished to this “Item 7.01 Regulation FD Disclosure” shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act regardless of any general incorporation language in such filing.

Important Notice Regarding Forward-Looking Statements

This communication contains certain “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the pending merger between Rite Aid and Albertsons and the transactions contemplated thereby, and the parties perspectives and expectations, are forward looking statements. Such statements include, but are not limited to, statements regarding the benefits of the proposed merger, anticipated future financial and operating performance and results, including estimates for growth, and the expected timing of the transactions contemplated by the merger agreement. The words “expect,” “believe,” “estimate,” “intend,” “plan” and similar expressions indicate forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to various risks and uncertainties, assumptions (including assumptions about general economic, market, industry and operational factors), known or unknown, which could cause the actual results to vary materially from those indicated or anticipated. Such risks and uncertainties include, but are not limited to, risks related to the expected timing and likelihood of completion of the pending merger, including the risk that the transaction may not close due to one or more closing conditions to the transaction not being satisfied or waived, such as regulatory approvals not being obtained, on a timely basis or otherwise, or that a governmental entity prohibited, delayed or refused to grant approval for the consummation of the transaction or required certain conditions, limitations or restrictions in connection with such approvals, or that the required approval of the merger agreement by the stockholders of Rite Aid was not obtained; risks related to the ability of Albertsons and Rite Aid to successfully integrate the businesses; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement (including circumstances requiring Rite Aid to pay Albertsons a termination fee to the merger agreement); the risk that there may be a material adverse change of Rite Aid or Albertsons; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of Rite Aid’s common stock, and the risk that the proposed transaction and its announcement could have an adverse effect on the ability of Rite Aid to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally; risks related to successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected; the risk that the combined company may be unable to achieve cost-cutting synergies or it may take longer than expected to achieve those synergies; and risks associated with the financing of the proposed transaction. A further list and description of risks and uncertainties can be found in Rite Aid’s Annual Report on Form 10-K for the fiscal year ended March 4, 2017 filed with the Securities and Exchange Commission (“SEC”) and in the registration statement on Form S-4, as it may be amended, that was filed with the SEC by Albertsons on April 6, 2018 in connection with the proposed merger, and other documents that the parties may file or furnish with the SEC, which you are encouraged to read. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements relate only to the date they were made, and Rite Aid undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made except as required by law or applicable regulation. All information regarding Rite Aid assumes completion of Rite Aid’s previously announced transaction with Walgreens Boots Alliance, Inc. There can be no assurance that the consummation of such transaction will be completed on a timely basis, if at all. For further information on such transaction, see Rite Aid’s Form 8-K filed with the SEC on March 5, 2018.

Additional Information and Where to Find It

In connection with the proposed merger involving Rite Aid and Albertsons, Rite Aid and Albertsons have prepared and Albertsons has filed with the SEC on April 6, 2018 a registration statement on Form S-4 that includes a proxy statement of Rite Aid that also constitutes a prospectus of Albertsons. The registration statement is not yet final and will be amended. Rite Aid will mail the proxy statement/prospectus and a proxy card to each stockholder entitled to vote at the special meeting relating to the proposed merger. Rite Aid and Albertsons also plan to file other relevant documents with the SEC regarding the proposed merger. INVESTORS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE, AS WELL AS OTHER DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. RITE AID’S EXISTING PUBLIC FILINGS WITH THE SEC SHOULD ALSO BE READ, INCLUDING THE RISK FACTORS CONTAINED THEREIN.

Investors and security holders may obtain copies of the Form S-4, including the proxy statement/prospectus, as well as other filings containing information about Rite Aid, free of charge, from the SEC’s Web site (www.sec.gov). Investors and security holders may also obtain Rite Aid’s SEC filings in connection with the transaction, free of charge, from Rite Aid’s Web site (www.RiteAid.com) under the link “Investor Relations” and then under the tab “SEC Filings,” or by directing a request to Rite Aid, Byron Purcell, Attention: Senior Director, Treasury Services & Investor Relations. Copies of documents filed with the SEC by Albertsons will be made available, free of charge, on Albertsons’ website at www.albertsonscompanies.com.

Participants in Solicitation

Rite Aid, Albertsons and their respective directors, executive officers and employees and other persons may be deemed to be participants in the solicitation of proxies from the holders of Rite Aid common stock in respect of the proposed transaction. Information regarding Rite Aid’s directors and executive officers is available in its definitive proxy statement for Rite Aid’s 2017 annual meeting of stockholders filed with the SEC on June 7, 2017, as modified or supplemented by any Form 3 or Form 4 filed with the SEC since the date of such definitive proxy statement. Information about the directors and executive officers of Albertsons is set forth in the registration statement on Form S-4, including the proxy statement/prospectus, as it may be amended, that has been filed with the SEC on April 6, 2018. Other information regarding the interests of the participants in the proxy solicitation will be included in the proxy statement/prospectus when it becomes available. These documents can be obtained free of charge from the sources indicated above.

Non-Solicitation

This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

About Rite Aid Corporation (NYSE:RAD) Rite Aid Corporation is a retail drugstore chain. The Company’s segments include Retail Pharmacy and Pharmacy Services. The Company operates under The Rite Aid name. It operates approximately 4,560 stores in over 30 states across the country and in the District of Columbia. The Company’s Retail Pharmacy segment consists of Rite Aid stores, RediClinic and Health Dialog. It sells brand and generic prescription drugs, as well as an assortment of front-end products, including health and beauty aids, personal care products, seasonal merchandise, and a private brand product line. Its front-end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, food and beverages, greeting cards, seasonal merchandise and numerous other everyday and convenience products. The Company’s Pharmacy Services segment consists of EnvisionRx, which provides a range of pharmacy benefit services.

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